SFC Concludes Consultation on OTC Derivatives Licensing Regime

The consultation paper aimed to refine the scope of regulatory activities under the regime.

The Securities and Futures Commission (SFC) of Hong Kong announced this week that it has concluded its consultation on the regulatory scope and competence requirements for the over the counter (OTC) derivatives licensing regime.

The consultation paper aimed to refine the scope of regulatory activities so that the corporate treasury activities of non-financial groups and certain portfolio compression services wouldn’t fall under the OTC derivative licensing regime.

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The actual consultation period for this paper ended on the 20th of February 2018. However, today the regulator has announced its conclusions. Namely, the SFC proposed to narrow the scope of the expanded Type 9 RA and the new Type 11 RA so that they do not capture corporate treasury activities of non-financial groups. Overall, respondents supported this proposal, the authority said.

Furthermore, the SFC prosed that the scope should be narrowed so that it does not capture the provision of post-trade multilateral portfolio compression services, which was broadly supported by respondents.

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In terms of central counterparty clearing, the SFC proposed that the scope of Type 11 RA should not capture portfolio compression services (whether bilateral or multilateral) provided by a CCP or a provider of client clearing services.

SFC to avoid creating unnecessary compliance burden

Commenting on the conclusion of the consultation paper, Ashley Alder, the SFC’s Chief Executive Officer said in the statement: “The refinements will focus our licensing framework on derivatives market intermediaries and avoid creating an unnecessary compliance burden for other market participants.”

According to the statement published by the regulator, it received written submissions from industry associations, market participants, professional services firms and other stakeholders, with the responses being generally supportive.

Following the conclusion of the consultation, the regulator will now work with the Government to finalise the necessary legislative changes and introduce them into the Legislative Council.

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